EU must take regionalisation of electricity markets a step further

The European Commission has proposed to set up Regional Operational Centers (ROCs), which is a welcome step in the further integration of the EU internal electricity market, writes Philip Baker of the Regulatory Assistance Project (RAP). However, according to Baker, the proposal does not go far enough: more regional coordination is needed if consumers are to reap the benefits of market integration.

The regionalisation of Europe’s electricity markets is moving apace. It is estimated that regional day-ahead markets now cover some 85 percent of Europe’s consumers (by demand). Although the introduction and harmonization of regional intra-day markets is developing fast with the implementation of the cross-border intra-day market project (a joint initiative by the European Power Exchanges EPEX SPOT, GME, Nord Pool and OMIE together with the transmission system operators from 12 countries), the first tentative steps are also being made towards coordinated balancing areas that extend beyond national borders.

Crucially, ROCs would also have a decision-making capability in certain limited circumstances, such as regarding the availability of interconnector capacity made available to the market.

Regionalisation will have many benefits. Not only will electricity consumers be able to access the cheapest sources of energy, but Europe’s electricity system will operate more efficiently through the pooling of risks, the exploitation of geographic diversity, and a reduced requirement to invest in new capacity.

Highly interconnected

Yet, regionalisation has so far primarily focused on the market process. To make regionalisation a success and ensure it delivers in full, for example by maximizing the availability of interconnectors, it will have to be extended to system operation.

This is recognized by the Commission’s Clean Energy Package which proposes the introduction of Regional Operational Centers (ROCs) to carry out tasks of regional relevance. The Commission’s proposal for ROCs would build on and enhance the role of the Regional Security Coordinators (RSCs), mandated and formalized into European law through the System Operation Guideline. Like the RSCs, the ROCs will complement the role of Transmission System Operators and perform activities of regional relevance such as allocation of interconnection capacity, risk preparedness, sizing of balancing reserves, and identifying the contribution to be made by external generation resources to national capacity markets.

If Member States and stakeholders are to accept a regional approach to ensuring resource adequacy, reliability, and market efficiency, ROCs will need to be seen as independent and operating in the interests of the region as a whole.

While the Commission’s proposals for ROCs are welcome, the proposals could have gone further in promoting a coordinated approach to the operation of Europe’s highly interconnected transmission system, supported by appropriate developments, both in terms of the competences attributed to the ROCs and of governance arrangements. If we are to have truly effective regional electricity markets, then the regionalisation of system operation, governance and competences need to keep in step. At the moment, system operation and governance are failing to keep up with the regionalisation of markets.

Crucially, ROCs would also have a decision-making capability in certain limited circumstances, such as regarding the availability of interconnector capacity made available to the market. This decision-making capability, which transmission system operators (TSOs) could only ignore if system safety is at risk, is vital to ensure a regional dimension to transmission system operation, complementing and supporting the regionalisation of the electricity market.

Regional crises

So what should be done? We recommend a number of approaches that could be taken.

Assign a greater role for ROCs in resource adequacy assessment. The value of assessing resource adequacy on a regional level is recognized by the Commission’s proposals, which require ROCs to carry out short-term adequacy assessments and, if delegated by the European Network of Transmission System Operators for Electricity (ENTSO-E), to participate in preparing seasonal assessments. This regional approach to resource adequacy should be replicated in investment timescales with ROCs having a role in the Europe-wide assessments carried out by ENTSO-E. The availability of regional resource adequacy assessments would complement the Europe-wide assessments and inform the national monitoring carried out by Member States, for example by identifying capacity support to be expected from neighboring systems.

ROCs best placed to identify and manage regional crises. ROCs will, in time, develop the regional knowledge, expertise, and analytical capability to identify regional crisis scenarios more effectively than either ENTSO-E or individual TSOs. As such, ROCs need a greater role in identifying regional crisis scenarios and in coordinating responses to regional crises when they occur. Where events extend beyond national borders, no Member State or TSO will have the ability to see the whole picture and to identify the most appropriate responses. In contrast, ROCs will have information from across the region and be able to coordinate responses to ensure the best outcome from a regional point of view. Releasing the potential of ROCs to manage regional crises will, however, require them to have a real-time decision-making capability.

Recognize the potential for ROCs to coordinate the real-time operation of market-sensitive assets. While, the near real-time “operational planning” role currently envisaged for the ROCs clearly allows them to influence real time activities, this could ultimately be extended to providing the real-time operational coordination necessary to allow efficient and safe regional market operation. This may be a step too far for Member States to entertain at this stage. However, the benefits of real time coordination will become apparent as confidence builds in ROC capabilities and the focus shifts from implementing market regionalisation to ensuring that those markets operate at maximum efficiency. Nothing in the Clean Energy Package should prevent the potential benefits of regional operational oversight in terms of market efficiency and system safety from being realized.

The whole process should be transparent and in the public domain, and sanctions should be available to deter TSOs from acting against the interests of the region.

Establish ROCs as independent entities with a clear mission to act in the interests of all electricity customers in the region. If Member States and stakeholders are to accept a regional approach to ensuring resource adequacy, reliability, and market efficiency, ROCs will need to be seen as independent and operating in the interests of the region as a whole. It will also be necessary to develop a process for the meaningful participation of stakeholders. This must allow the involvement of stakeholders in defining the rules and methodologies that will underpin the governance of ROCs and in the process of monitoring their activities and performance.

Give ACER a greater supervisory role. Given that ROC activities will extend beyond the reach of individual national regulatory authorities (NRAs), it is appropriate that the Agency for the Cooperation of Energy Regulators (ACER) takes a greater role in monitoring and supervising ROC operations, for example by organizing groupings of regional NRAs. ACER should have a clear role in the establishment of ROCs and in the development of their governance arrangements. In addition, ACER should be empowered to make binding decisions where ROC actions are inconsistent with EU-level objectives, internal energy market rules, or the interests of consumers in the region as a whole.

Introduce a legal mechanism for promoting public scrutiny. TSOs will always need to have the ability to disregard ROC decisions where they can demonstrate compliance would jeopardize the safety of the national system, i.e. if operational security limits cannot be maintained. However, when TSOs decline to implement ROC decisions, a public process is needed to review the appropriateness of the TSO action. The TSO should report the reasons for declining to accept a ROC decision (or recommendation). The ROC concerned should have the opportunity to review and issue an opinion on the TSO justification and, if there is disagreement, ACER could investigate and adjudicate. The whole process should be transparent and in the public domain, and sanctions should be available to deter TSOs from acting against the interests of the region.

Times of stress

The Commission’s proposals to enhance the role of the RSCs and to create ROCs are a welcome move in the right direction. However, more could be done to exploit the potential of ROCs in performing tasks of regional relevance and benefit such as resource adequacy assessment and dealing with crises that extend beyond national borders.

In addition, the Commission’s proposals for regulating ROCs and supervising their activities fall short of what is necessary. If regional electricity markets are to operate effectively and safely, particularly in times of stress, then ROCs need the independence and authority to coordinate national responses in the interests of all regional electricity consumers.

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